Sign Up for 4-H Summer Camp is Open
Sign up is open to everyone for 4-H summer camp in Monticello. As you’ll hear it is a great place to send your kids aged 8–16.
markets and weather for the farming world | Todd Gleason, Farm Broadcaster
Sign up is open to everyone for 4-H summer camp in Monticello. As you’ll hear it is a great place to send your kids aged 8–16.
There’s some good news for a change in the pork industry. Todd Gleason has more on the better prices with Purdue Extension Economist Chris Hurt.
Pork producers are pleased to see prices higher than earlier expectations.
This comes after a really tough year, says Purdue’s Chris Hurt, that bottomed out in November with prices dropping to about $32 for a hundredweight. That’s like paying 32 cents a pound for your pork chop and your bacon - at least at the wholesale price. Now things are way better says the ag economist. Recently live prices have reached the mid-$50 and have pulled the industry out of deep losses into profitability.
The leading reason for the better on farm price is actually lower pork prices at the grocery store. The “law of demand” says people will buy more when prices are lower, and retail pork prices… have been lower say Chris Hurt, “Retail pork prices peaked in 2014 because of reduced supplies due to the PED virus and have generally been falling since 2015. In the final quarter of 2016, retail pork prices dropped 26 cents per pound from the same period one year earlier. The downward movement continued in January of this year with retail pork prices down 22 cents per pound from one year earlier.”
An additional issue contributing to the extremely low prices for pork producers last fall was the small portion of the retail dollar getting back to producers. Another way of saying this is that the margins for the processors and retailers remained substantially higher than normal. As a result, the portion of the retail pork dollar that got back to the producer dropped to 17.5 percent. This was lower than the previous record low of 18.4 percent in the financially tragic final quarter of 1998. As for the rest of 2017, Hurt thinks there is room for even lower retail prices and a higher percentage of that price getting back to the hog producer.
Probably the biggest opportunity for hog producers is the advent of new processing capacity coming on line in the last half of 2017. The added competition for hogs will likely reduce the farm-to-wholesale margins with much of that reduction bid into higher hog prices. In 2016, for example, USDA reported the farm-to-wholesale margin as 70 cents per retail pound compared to 58 cents in 2015. Export demand remains a positive for the 2017 hog price outlook as well. USDA expects a four percent increase in exports with little change in imports.
Pork supplies are not the reason for higher hog prices in 2017. So far this year, pork production has been about three percent higher than for the same period last year.
Live hog prices are now expected to average near $51 for 2017, up from $46 in 2016. Live prices are expected to average in the very high $40s in the first quarter, then move to the low-to-mid $50s in the second and third quarters, and then finish the final quarter in the mid $40s.
Total costs of production for 2017 are expected to be near $50 per live hundredweight, similar to the annual forecast price of hogs. If so, this means pork producers will recover full costs of production in 2017. Losses in the first and fourth quarter would be offset by profits in the second and third quarter.
There has been an overall improvement in prospects for animal and animal product prices since last fall. That is true for beef, pork, and milk markets. The source of that improvement may well be related to the general improvement in the anticipated economic growth rates for the U.S.-think of the stock market increases since the election. These increases are largely based on anticipated policy that will stimulate the economy, including tax cuts, infrastructure spending, and reduced regulations.
Markets for animal products remain vulnerable to at least three outcomes that could differ from current optimism: 1) The anticipated economic stimulus is not implemented, 2) The strength of the U.S. dollar slows agricultural export sales from anticipated levels, and 3) The U.S. moves in a direction of more protectionism that increases trade barriers and reduces our agricultural export sales potential.
Each industry is trying to figure out what the new administration means for them. Agriculture incomes are importantly influenced by the domestic economy, by the global economy, by exchange rates, and by trade. Agriculture, like other industries, must take a “wait and see” attitude.
University of Illinois Agricultural Economist Scott Irwin discusses rumors driving the commodity markets Tuesday, February 28, 2017 related to biofuels and the Trump administration with U of I Extension Farm Broadcaster Todd Gleason.
China purchases two-thirds of the soybeans traded on the planet.
Over the next ten years, USDA expects global soybean trade to increase by 25% and that Chinese purchases will account for 85% of the increase. The numbers were presented at the Agricultural Outlook Forum in Washington D.C., (today, Thursday, Feb 23, 2017) by USDA Chief Economist Rob Johannson. He says the projections are based on the assumption the number of middle-class households in China will double to nearly 250 million by the year 2024, “Those households will start demanding more meat, protein, and processed foods in their diet. And looking to other potential markets that could provide significant new demands for food commodities, we note that the number of middle-class households in India is expected to triple by 2024.”
Johannson says the United States has not had nearly as much success in opening new markets in India as it has in China. He thinks poultry, eggs, fruit, and milk have the greatest potential. The estimated annual growth in poultry meat, he explains, could exceed eight percent. That kind of livestock trade across the planet the Chief Economist explains will require grain and oilseed farmers to expand acreage, "Based on projected yield growth, the world will need to allocate about 50 million more acres of corn, wheat, and soybeans at U.S. productivity growth levels to meet the increase in trade demand.
The United States says Johannson is expected to remain the world’s largest exporter of corn over the next ten years with the U.S. share between 38 and 39 percent. Brazil is expected to remain the world’s largest soybean exporter with its share of exports growing to over 50 percent by the year 2026.
The warm weather in the Midwest has farmers itching to go to the field to get some pre-season work done. University of Illinois Extension Agronomist Emerson Nafziger says it is ok to apply anhydrous ammonia to corn acres. Nafziger says as long as soil conditions are good, a late winter anhydrous ammonia application should work just like a fall application.
sources
FarmDocDaily Article
Congressional Budge Office (CBO) Projections
USDA Long-Term Projections, February 2017
by Todd Hubbs, Grain Markets Specialist - University of Illinois
The time of year to develop corn balance sheet projections for the upcoming crop year is upon us. As we approach the halfway point of the 2016–17 marketing year, decision making regarding planting and new crop marketing get determined. The expectations for corn in the 2017 crop year put forth in this analysis show lower production leading to decreased ending stocks in 2017–18. The magnitude of reduced ending stocks provides important implications for corn prices moving through 2017–18.
Current market consensus projects farmers to plant fewer corn acres in 2017 than the 94 million acres planted in 2016. As discussed previously, numerous factors point toward greater soybean acreage and lower corn acreage in 2017. These include lower winter wheat seedings, a lower cost of production for soybeans, and the current perceived price advantage for soybeans over corn. Congressional Budget Office (CBO) projections for baseline farm programs released last month set planted acreage at 91.5 million acres. Current USDA long-term baseline projections to 2026 have 2017 planted acreage for corn at 90.0 million acres. A reduction of 3.5 million acres from 2016, which places planted acreage at 91.5 million acres, is used in this analysis. Planted acreage at 91.5 million acres would lead to around 83.2 million acres harvested for grain in 2017.
Yield expectations typically use trend yield analysis to generate yield projections for the next crop year. National average corn yield came in above trend for the last three growing seasons and culminated in an estimated 174.6 bushels per acre in 2016. CBO projections place 2017 corn yield at 170 bushels per acre. USDA long-term baseline projections set 2017 yield at 170.8 bushels per acre. We find a linear trend of actual U.S. corn average yields from 1960 forward to be the best fit. The trend explains 89 percent of the annual variation in corn yields from 1960–2016. Weather conditions, as one would expect, impact yields. Bad weather reduces yield by more than good weather increases yield. Since this is the case, trend estimations can understate yield expectations in an average weather year. The trend estimate for 2017 is 166.8 bushels per acre. By adjusting the trend estimation for weather influences, we generate a national corn yield expectation of 169 bushels to use in this analysis. At this yield level, the 2017 crop projection is 14.1 billion bushels. By including the current projections for ending stocks by the USDA of 2.32 billion bushels with 50 million bushels of imported corn, the 2017 corn supply comes in at 16.4 billion bushels. The 2017 corn supply estimate is approximately 509 million bushels less than the current marketing year supply estimation.
2017–18 marketing year expectations for consumption exceed projected production, which leads to a lower level of ending stocks by the end of the marketing year. The size of the decline is important for determining price as we move through the next marketing year. Exports, ethanol production, feed and residual, and other domestic uses determine the consumption of corn. U.S. corn exports vary considerably from year to year. In the last decade, corn exports ranged from a low of 730 million bushels in the 2012–13 marketing year to 2.44 billion bushels in 2007–08. Corn exports will be influenced by trade policy, world corn production, economic growth, and exchange rates. Current 2016–17 marketing year corn export projections sit at 2.225 billion bushels, which were helped by lower corn production in South America in 2016. Current corn production projections for Brazil (3.41 billion bushels) and Argentina (1.44 billion bushels) are up 29 percent and 26 percent respectively in 2017. World production projections come in 8 percent higher for 2017. While U.S. corn exports will continue to be strong, 2017–18 projections reduce corn exports in this analysis to 1.95 billion bushels on larger foreign corn production.
Corn used for ethanol production will be impacted by EPA rulemaking related to implementing RFS mandates, gasoline consumption, and ethanol exports. An expectation of increased fuel ethanol requirements and slight increases in gasoline consumption with a positive ethanol trade balance provide support to the continued increase in corn used for ethanol. Corn used for ethanol expectations increase to 5.4 billion bushels in the 2017–18 marketing year. Other domestic uses for corn do not vary significantly from year to year. With a slight increase, other domestic use expectations provide 1.45 billion bushels of corn use.
The pace of corn consumption for feed likely will continue to show strength in the 2017–18 marketing year. Livestock production growth in many sectors provides support for corn feed use during this marketing year. Despite strong livestock production, several factors may limit corn feed use moving forward. The increase in ethanol production increases distiller’s grain availability. Increased availability of feed grains across the board may suppress some corn feed use. Residual use of corn could be reduced if the 2017 crop is smaller than the 2016 level. Feed and residual use might be near 5.5 billion bushels.
Current expectations for corn consumption in the 2017–18 marketing year are 14.3 billion bushels. Ending stocks would be 2.131 billion bushels, which is 189 million bushels lower than the current 2016–17 marketing year projections. Based on the analysis of corn production and consumption expectations, season average market price comes in at the $3.65 - $3.75 range for the 2017–18 marketing year.
Monsanto used to be a chemical company that made herbicides. It then transitioned to a genetic-traits company that produced seeds. Now, as it is set to merge with Bayer, the Chief Technology Officer for Monsanto looks to be casting the St. Louis based agricultural giant into the data-science world of Apple and Samsung. Todd Gleason has this interview with Robb Fraley from the 2017 Illinois Soybean Summit in Peoria.
Quote Summary - For 2017 we used trend yields and commodity prices of $3.80 for corn and $9.90 for soybeans that resulted in lower incomes for the year. Probably something in the $20,000 range per farm.Schnitkey cautions it is very early in the season, and that at this same time last year 2016 was projected to be a very, very bad year. It rebounded. It is also important to note that while higher than 2015 incomes, the projected 2016 incomes do not result in the building of financial reserves on most Illinois farms. Schnitkey believes most farms will continue to see the erosion of working capital, potentially leading to the need to refinance outstanding operating loan balances.
Farmers around the nation are expected to plant more soybeans than usual this spring. There are many reasons this might be the case, but only one price outcome if things on the planet remain the same.
There are three points University of Illinois agricultural economist Todd Hubbs says farmers need to remember about soybeans this year; acreage, stocks, and price.
It seems likely the price of soybeans at harvest this fall could be much lower than it is now. The options a farmer might consider because of this potential is choosing a different crop insurance plan.
Federal crop insurance comes in two basic revenue protection forms, R-P and A-R-P. R-P stands for Revenue Protection and A-R-P stands for Area Risk Protection. The difference between the two says University of Illinois Agricultural Economist Gary Schnitkey is simple enough to understand.
Gary Schnitkey - RP is what most people buy, Revenue Protection. It is a farm level product and makes payments based on what happens to farm yields. ARP is a county level product. So, it makes payments on what happens to county wide yields, county revenue, but it is the county yield that is entered into the equation rather the farm yield (as is the case) for RP.
It is the available coverage level under the ARP federal crop insurance option that put Schnitkey’s mind to work when he was considering how farmers should use the risk management program this season.
Gary Schnitkey - The reason why I think farmers should consider it is because they have a 90% coverage level in ARP versus only 85% on ARP. This year, you know, we are probably looking at some more downside risk on soybeans and a 90% guarantee would cover more of that price risk.
Moving up to a 90% coverage level increases the price below which crop insurance payments occur. Given a $10.20 projected February price and a 90% coverage level, harvest prices below $9.18 a bushel for soybeans in November ($10.20 x .90) would generate payments, given that the harvest yield equals the guarantee yield. The $9.18 price compares to an $8.67 break-even price at an 85% RP coverage level, and an $8.16 break-even at an 80% coverage level.
There are some caveats when switching from RP to ARP.
ARP does not have prevented planting or replant payments while RP does. The coverage on ARP begins when the crop is planted. Because ARP uses county yields in its calculations, a farm may not receive a payment if the farm has a poor yield and the county does not. The relative premiums on RP and ARP vary across counties. Not all counties will have a 90% ARP premium that is lower than the 85% RP policies.
Finally, here’s an important note about the crop insurance guarantee from Gary Schnitkey. The CME Group soybean contract for November 2017 delivery currently is trading around $10.20 per bushel. A $10.20 per bushel projected price would be $1.35 higher than last year’s projected price of $8.85 per bushel. In and of itself, a higher projected price will offer additional revenue protection on soybeans without the need to consider the merits of RP versus ARP.
A University of Illinois Animal Sciences alum has been elected president of the Illinois Pork Producers Association.
A University of Illinois agricultural economist has been thinking about the supply and demand for corn in the United States and elsewhere.
U.S. farmers harvested more than fifteen billion bushels of corn last fall. That’s a very, very big crop. It is expected there will be more than the usual amount leftover from it by the time the next crop comes in. Todd Hubbs has been thinking a lot about that and how the corn crop is used. He says exports have been strong. Factually 69% of what USDA thinks will be shipped out, has either been shipped or booked, already. And, we’re not even half-way into the marketing year.
Todd Hubbs - So, meeting that 2.25 billion bushels USDA projected for exports looks feasible right now, but we do have the South American crop coming on to compete. So far exports look strong. I am a little concerned about some of the policy issues surrounding our export market, but at this point it is a wait-and-see scenario in my mind.
Exports are the smallest primary component of corn consumption at a projected two-and-a-quarter billion bushels. Next up is ethanol at five-billion-three-hundred-twenty-five million. Those numbers suggest this sector is booming.
Ethanol production has hit record levels of over a million barrels per day for the last two months. However, over the last couple of weeks ethanol stocks have started to build. This means the ethanol margins are starting to deteriorate. Hubbs says production could slow, but maintains the consumption pace for ethanol will be pretty strong in the near-term.
The last and largest segment of corn consumption to explore is feed usage. USDA in January estimated five-point-six billion bushels of corn would be fed to livestock. It is a really hard number to calculate says U of I’s Todd Hubbs.
Hubbs - You never know how much corn is being consumed as we move through the marketing year. Still, livestock numbers are up almost across the board. The hog herd is up. Broiler placements and egg settings are up one to two percent a week. So, when we look at the livestock sector there is a lot of livestock production going on. Having said that, the initial number USDA projected at the beginning of the marketing year has been reduced by 50 million bushels.
Some of that is because of competition to use the corn in the ethanol industry and some because of substitution. There is more available sorghum to feed and it can be cheaper than corn. In the near term Todd Hubbs says the consumption pattern should keep the price of corn in Chicago mostly in its current trading range. That’s somewhere between $3.40 and $3.70 per bushel.
The Iowa Supreme Court has ruled drainage districts in the state cannot be sued for the cleanup of nitrates in drinking water. Justice Thomas Waterman authored the majority opinion, writing that policy deciding who pays for nitrate removal is the jurisdiction of Iowa lawmakers. This was a win for the drainage districts says University of Illinois Agricultural Policy Specialist Jonathan Coppess. However, he says the Clean Water Act implications of the suit, about whether or not field tiles are point sources that can be regulated, remains to be addressed.
“So the big question under the Clean Water Act, as I understand it, is the Des Moines Water Works is claiming that the agricultural stormwater exemption under the Clean Water Act does not apply to drainage districts. In this case, because once it comes through the pipes it becomes a point source.” –Jonathan Coppess, Agricultural Policy Specialist - University of Illinois
Again, the decision in the Iowa courts is that only lawmakers in the state can determine who pays for the cleanup of nitrates from drainage districts. It did not address issues related to whether or not field tiles should be subject to regulation under the Clean Water Act.